Abstract:

In conventional insurance, the basis of the contract is not mutual help where each of the policy holders contribute money to help one another when they face difficulties; rather the insured transfers their risks onto the insurer, who in return transfers the same risks onto the reinsurance operators. Hence, the contractual relationship in conventional insurance is not based on risk sharing where each and every one supports and helps the other, but instead on risk transfer which fosters an atmosphere of selfishness in protecting each individual party. Furthermore, the conventional insurance practice is embedded with unethical elements, which include but are not limited to: investment in Shari’ah non-complaint elements, gambling, uncertainty, and usury. In essence, it is some of the practices related to insurance that are against Shari’ah, not the concept of insurance itself. When something is not in conformity with Shari’ah, unethical consequences arise. In an effort to avoid the unethical and Shari’ah non-complaint issues in insurance practices, one practical solution is to replace conventional insurance with a Shari’ah compliant version known as Takaful. To ensure the preservation of a harmonious society, Shari’ah aims to mould our conducts in all aspects of our rituals and daily life activities. Takaful operators need not to be anxious of loss of profits since Shari’ah compliance does not equate to financial loss because Islam actually encourages business activities and trade where transactions are also compliant within the boundaries of Shari’ah. With Takaful functioning as an alternative counterpart to conventional insurance, solutions will be drawn up for many problems. For instance, major prohibited elements which include uncertainty, usury, and gambling will be eradicated. Additionally, prohibited business activities are steered away from Takaful scheme. What makes Takaful contracts totally unique compared to conventional insurance contracts is that the latter is based on the exchange of risk whereas the former is based on the concept of risk sharing. Setting aside the financial gains, moral and societal gains are also expected from Takaful where solidarity among the society is promoted with the concept of mutual cooperation put into action throughout the community.